Covivio (EPA:COV) missed earnings with its latest annual results, disappointing overly-optimistic analysts. It looks like a clear earnings miss, with both revenues and earnings falling well short of analyst predictions. Revenues of €1.0b missed by 10%, and statutory earnings per share of €8.77 fell short of forecasts by16%. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Following last week's earnings report, Covivio's seven analysts are forecasting 2020 revenues to be €1.00b, approximately in line with the last 12 months. Statutory earnings per share are forecast to dip 7.0% to €7.94 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of €1.08b and earnings per share (EPS) of €9.31 in 2020. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a real cut to earnings per share forecasts.
Analysts made no major changes to their price target of €98.85, suggesting the downgrades are not expected to have a long-term impact on Covivio's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Covivio analyst has a price target of €120 per share, while the most pessimistic values it at €59.10. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.9% a significant reduction from annual growth of 1.5% over the last five years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 0.4% next year. It's pretty clear that Covivio's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Covivio. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Covivio. Long-term earnings power is much more important than next year's profits. We have forecasts for Covivio going out to 2021, and you can see them free on our platform here.
It might also be worth considering whether Covivio's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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